Insights & News

Looking East

Without a doubt, China will continue to grow in importance both politically and economically. A day rarely passes now where China is not featured in the news and business section headlines – how can companies develop opportunities in China?

The attention being paid to China is unsurprising; China is still predicting its economy will grow by up to 8% this year. It has a vast surplus accrued over the last six or seven years, generated by the credit fuelled consumption and property “bubble” that has been prevalent in the Western nations. This means it can finance its own fiscal stimulus from reserves as necessary. It is a main provider of purchasing power (government debt) to the West. Additionally, China has a vast home market of almost 1.4 billion people, offering enormous latent growth potential. For example, one carefully targeted recent stimulus caused an instant 25% increase in new car registrations.

DEAL SOURCING MADE EASY

China is not just an investment destination for larger firms but a significant opportunity for smaller and medium sized companies that are sufficiently flexible and entrepreneurial. Any company with growth aspirations and a good quality management team would be wise to at least consider what China has to offer.

Deal sourcing (joint ventures, acquisitions, investments) in China is notoriously difficult as company information is either unreliable, not in the public domain or spread across hundreds of sources in a variety of formats. Even established private and institutional investors/acquirers find identifying the right target companies to be difficult. This is about to change; BCMS Corporate has expanded to China in order to provide Chinese business owners with exactly the same unique approach to selling all, or a proportion of, their companies as we provide to our clients in the UK, USA, Sweden, Turkey and Chile. For those unfamiliar with our approach, we represent vendors and assist them in taking their businesses to market, locating the most suitable potential acquirers and negotiating a price which fully reflects the value of the business.

FROM ACORNS

Our clients tend to be in the $1 million to $125 million turnover range and in China our focus will be no different. Much of the cross-border merger and acquisition activity in China to date has been focused on macro-deals. Now, the country is very aware of the vital role its small and medium enterprises (SMEs) are playing, and will continue to play in the future. In a survey carried out in October 2006, findings revealed that there are more than 4.3 million SME companies in China. They contribute 58.5% of GDP, 50.2% of taxation, account for 75% of employment, 66% of patents and 82% of new products of the country.

This impressive resource is packed with opportunity and will undoubtedly be the breeding ground for some of the global brands in the near future. Some Chinese SME’s will grow to become dominant players in their home market. Entrepreneurial activity and innovation is now very much part of Chinese business culture.

OPPORTUNITY KNOCKS

It may be that you are already active in China, either through an existing wholly-owned business or through a joint venture arrangement. Perhaps you are outsourcing manufacturing or other aspects of your business to drive down costs and remain competitive – in which case you will already know how rewarding a Chinese business partner can be. For many of you though, this may in fact be a completely new venture and as such, some further investigation beyond consideration of acquisition or investment opportunities will be needed. A useful contact is the U.S-China Business Council (USCBC), which has a depth and breadth of expertise for existing or new players in the Chinese market. Trade missions are run frequently between the two countries but are unlikely to result in finding the right strategic opportunity at the first attempt. However, they can be useful as a means of experiencing China for the first time.

The BCMS Corporate service is not affiliated in any way but will be complementary to the advice and practical assistance available through USCBC. Once you have decided that continued or new expansion into China is right for you and that an acquisition or investment is a likely part of that process, BCMS Corporate will be uniquely placed to identify relevant target companies from our proprietary deal-flow ‘intelligence’ service. During a recent visit to China, BCMS Corporate directors negotiated and signed important and exclusive co-operation agreements with ‘Equity Exchanges’, a national association for SME’s, Economic Development Agencies and key trade bodies

These agreements ensure the smooth growth of BCMS Corporate’s Chinese entity and will add to our own intelligence gathering service through exclusive and privileged access to many of the best business sale and investment opportunities in China.

MUCH IN COMMON

The Chinese are generous hosts; anyone traveling to China is assured of a warm welcome. There is, in our experience, a very good affinity between Americans and the Chinese. Their way of doing business naturally lends itself to the American way. While respectful and patient, if you have done your research and you clearly have something relevant to talk about, first meetings can move very quickly into meaningful and fast moving negotiations.

The language barrier is a factor but the number of English speakers is increasing rapidly. There is a significant emphasis on teaching English in schools and there are many Chinese who have been educated in the West and understand both Western and Eastern cultures. Engaging a good interpreter or recruiting English speaking staff is therefore not particularly difficult. In times of economic uncertainty, those companies that take practical, decisive steps to enlarge their marketing skills and embrace new business opportunities around the world will find that it is still possible to thrive. China represents such an opportunity, and for some it will present itself as a golden opportunity to excel.